Equity trend bullish but I suspect until both DXY and TNX break trendline support that the rally could prove a bit choppier into the end of May before a stronger push higher. SPX and QQQ’s push back to new highs finally led the DJIA to exceed 40k for the first time ever to cap off a bullish (+~1.5%) week for stocks. Yet, S&P 500 Equal-weighted index along with DJ Transportation Avg along with many Small and mid-Cap Averages remain below all-time highs, and this larger broad-based rally will take time. Overall, short-term trends remain bullish, and momentum and breadth are supportive of further gains into June.
US Equity markets have shown a bit of stalling out, but yet no meaningful evidence of any trend deterioration has occurred.
Some minor sector rotation that has led many commodity-based stocks higher looked to be the new trend worth discussing following a sharp rebound in Energy and Materials to end the week.
Oil looks to be bottoming in the near-term, and Silver managed to reach the highest levels in more than a decade. Moreover, many gold and silver mining issues also have begun to finally play catchup following their initial lagging the Precious and industrial metals on the rally.
Overall, this rally has proven tricky at every turn this year given the rampant sector rotation despite a stellar rally which has only led to around three weeks of actual price losses before turning back higher.
The broader market has yet to play catchup to the SPX and QQQ, but I believe this move is right around the corner, and will coincide directly as Treasuries begin to accelerate higher into June.
At present, the Equal-weighted SPX is shown below, hovering right under all-time highs. This level could be tested as early as next week. However, I think all-time highs for the Equal-weighted SPX could prove to be more challenging than SPX’s all-time highs.
Thus, Technology is expected to lead, for the time being, and it’s still difficult to suggest that Equal-weighted SPX is as strong as SPX given Tech’s dominance. No real consolidation has occurred thus far despite a couple days of stalling out. I expect RSP 0.49% , the Invesco Equal-weighted SPX ETF, should test all-time highs next week.
S&P 500 Equal Weight ETF
Silver has broken out vs. Gold and should be favored
This weekly relative chart between SLV 0.92% and GLD 0.82% says it all. Following a lengthy period of Gold outperformance (shown here as SLV moving lower vs GLD) Silver has begun to gain ground rapidly. SLV this past week has broken out of a three-year downtrend vs. Gold, and likely will continue to gain in relative strength in the weeks to come.
Such a move normally occurs during bull markets in the precious and industrial metals, and I suspect that Silver’s move above $30.50 to the highest levels in more than a decade keeps this pointed higher for a push up to $40 at a minimum.
As shown below the three-year downtrend in Silver vs. Gold (as gauged by ETF performance, Ishares Silver Trust (SLV 0.92% ) vs. Ishares Gold Trust (GLD 0.82% )) has been broken. SLV should likely gain ground more quickly than Gold in the weeks and months to come.
I favor ETF’s such as SLV 0.92% and AGQ -0.73% and expect the SILJ 1.91% to show good performance for the Silver Mining names.
Ishares Silver Trust ETF / Ishares Gold Trust ETF
Silver Miners have begun to move up more quickly than Gold mining shares
This ETF by Amplify, the Junior Silver Miners ETF, or SILJ 1.91% , broke out more than a month ago and has been rallying sharply following the breakout of its three-year downtrend.
I expect that at $12.74, SILJ could gain ground to test former 2021 highs near $19.
GDX 2.49% , the VanEck Gold Miners ETF, also has broken out of a similar downtrend going back since August 2020, but this breakout just happened this week.
Overall, both Gold and Silver mining stocks are bullish technically and should gain further ground in the weeks ahead.
Amplify Junior Silver Miners ETF
Materials Sector remains a Technical Overweight
The breakout earlier this year of Materials vs. the S&P 500 in Equal-weighted terms arguably bodes well for this sector to show some further outperformance at a time of commodities starting to gain ground.
Recent gains in the Metals has been noteworthy this week, but other parts of the Materials sector is equally as attractive.
This chart below highlights the Equal-weighted Materials Sector ETF (RTM) vs. the Equal-weighted S&P 500 ETF (RSP 0.49% ) both by Invesco.
This breakout signals a shift in trend following a lengthy multi-year downtrend for Materials in relative terms.
While the Materials sector doesn’t carry much weight within SPX, it’s worthwhile to see that this sector’s outperformance began a few months ago and likely can continue into the Summer given Metals and Energy doing well.
XLB 0.19% , The Materials Sector SPDR ETF, should push back to new all-time highs in the weeks ahead, and I expect this should remain a Technical overweight until July/August timeframe.
S&P 500 Equal Weight Materials ETF / S&P 500 Equal Weight ETF
